What do you guys think about this idea for consolidating UTXOs while retaining privacy?
I think the Lightning Network is one of the best mixers I know about. You can open some channel with any stranger, send your coins inside that network, and transfer them back to the main network. If you do that correctly, you will get completely different coins. It is far better than trusting any centralized mixer, because you always have some transaction that can be used to close your channel in case another party will stop cooperating.
So, in LN you can consolidate, split, and mix your coins in any way you need. Then you can move them back to the main chain and you will see your outputs coming from many different places, so linking all of them will be quite difficult.
I can't quite follow your claim of LN being kind of a mixer where you can gain or maintain anonymity. When you open a channel you have an on-chain funding transaction with a publicly visible receiving address that with non-Schnorr signature looks a bit different than normal Bitcoin transactions (the script is different and recognizable to my knowledge).
Now when you close that channel you receive your part of the channel's balance via this funding address. As far as I understand it all addresses are somewhat linked together (UTXOs used to fund the channel, channel funding address, channel close via funding address to an UTXO in your wallet). I don't see any magic involved to link all those addresses together. More channels just add more linked addresses per channel.
I haven't used Submarine Swaps so far, as I find them quite expensive. But if you can introduce new on-chain addresses with them, then I see the potential to break "normal coin flow" an a LN channel.
So, in LN you can consolidate, split, and mix your coins in any way you need. Then you can move them back to the main chain and you will see your outputs coming from many different places, so linking all of them will be quite difficult.
I won't claim to understand LN to great extend, I'd consider my LN knowledge as around basic, maybe more than basic, but that's subjective and not quantitative at all.
Say with normal channel handling, how to you explain your "outputs coming from many different places"? I don't get it at all. Or do you include Submarine Swaps or similar with LOOP implicitly?